American Home forced to shut down

Bad loans spread to people with good records

Published 10:00 pm, Thursday, August 2, 2007

American Home Mortgage Investment Corp. plans to shut down, becoming the second-biggest residential lender to fail this year as bad loans spread to people with good credit records.

The last day for most employees will be Friday, Chief Executive Officer Michael Strauss told the staff in an e-mailed memo obtained by Bloomberg. Investment bankers cut off credit earlier this week, leaving the Melville, N.Y.-based company unable to fund at least $750 million of mortgages promised to thousands of now-stranded borrowers.

"Conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that our business is no longer viable," Strauss wrote Thursday. The stock dropped more than 95 percent this year.

Investors have punished shares of U.S. home lenders as defaults spilled over from subprime borrowers with the worst credit histories to people with more reliable records. American Home specializes in mortgages for people with good credit who don't qualify for loans with the best terms.

Mary Feder, a company spokeswoman, didn't return a call seeking comment. In a news release, American Home Mortgage confirmed it was reducing its work force by almost 90 percent, to 750 employees from 7,000.

The stock, which traded at almost $40 two years ago, fell 3 cents to $1.45 on the New York Stock Exchange. Shares sold for as little as 68 cents after regular trading closed. Billings, Ramsey Group Inc. analyst Paul Miller said the price is headed for zero.

"The next announcement will be the liquidation of the company's assets or some type of sale of the origination and servicing platform," Miller wrote in a note to investors. "We do not believe the common shareholders will have any recovery."

"Several of our competitors have recently stopped originating loans or sought protection under bankruptcy laws," San Diego-based Accredited said Thursday in a regulatory filing. "We may suffer a similar fate."

American Home offered Alt-A mortgages, an alternative for A-rated borrowers who can't satisfy all the terms for a regular prime mortgage. The company was the 13th-biggest U.S. home lender last year, according to data from trade publication Inside Mortgage Finance.